For the third consecutive quarter, law firm managing partners expressed doubt about the direction of the legal industry and broader economy, according to a quarterly report by Citi Private Bank. And who can blame them? It isn’t a great time to be a Big Law lawyer, according to a number of recent reports.
Before going into the Citi results, we’ll point to four significant stories from the third quarter that don’t exactly give lawyers reason to celebrate the state of their profession — a profession that not too long ago was highly sought-after because of its intellectual satisfaction and pedigree.
For one thing, bar exam results are abysmal, partly because the market for jobs at major law firms is so bleak. According to Businessweek’s Natalie Kitroeff, the average score on the multiple choice portion of the July test fell 1.6 points from the previous year , reaching the lowest level since 1988, according to data from the National Conference of Bar Examiners.
But let’s not stop with the pipeline issue. Managing partners also have pretty good reason to be depressed about their ability to retain and attract lasting talent at the partner level, too, as the lateral market has become a comedy of revolving doors. The American Lawyer published a story earlier this month that Greenberg Traurig partner Michael Loesberg left his firm’s New York office in early September to join Kelley Drye & Warren, only to end up at Blank Rome days later.
And if we’re talking about practice area growth, numerous areas outside of M&A and capital markets are getting walloped by industry pressures that have led to a sharp decline. Kenyon & Kenyon’s new managing partner Edward Colbert told Big Law Business last month that intellectual property litigation is undergoing a “short-term dislocation,” at least in part because of an out-of-court proceeding created by the America Invents Act to challenge patents. Colbert, the brother of Late Show host Stephen Colbert, is an example where a comedian has earned a living as impressive as his Big Law lawyer brother.
On a more mundane note, routine litigation work is being increasingly sent to low cost service providers by general counsels wanting to manage their outside legal bill.
Also, lawyers generally tend to look at the negatives, so that can’t help. Some of the only good news looks like a report from early this month that the legal industry added 4,700 jobs across the nation , which would be better if those figures weren’t adjusted every month, and if it actually took into account all law firm partners.
Now, the Citi results, at long last: the law firm lender conducted a survey of managing partners at 68 participating law firms — with 29 being among the 100 largest U.S. law firms; 15 in the second hundred largest and the other 24 either being niche or UK law firms.
It asked managing partners to grade their confidence on a scale of 0-200 on a number of topics, such as discounting, legal demand and lawyer hiring. Then, Citi aggregated the scores and produced an overall score in each of nine categories.
The survey found that the leaders confidence in the economy at large dropped an overall of eight points compared to the previous quarter, producing an overall score of 103 points, down from 111 in Q2. The score had already declined by eight points in the second quarter, when only 54 law firms participated in the survey.
Meanwhile, managing partners also expressed skepticism about the state of their own businesses. The report ranked managing partner confidence a score of 104 overall, or a six point decline from last quarter, when the score had already dropped five points in Q2.
The Citi report, however, noted a caveat: the overall score was still over 100 — 110, to be precise — so it wouldn’t be accurate to characterize managing partners feelings as outright negative quite yet. But the glum feelings certainly seem to be a fire that’s being fanned.
For commentary, we reached out to Edwin Reeser, a regular commentator on all things law firm business and a former managing partner, as well as William Henderson, a law professor at Indiana University of Mauer School of Law.
“It’s getting harder to generate new business and to grow your top line revenue,” said Henderson. “The historic, bill-by-the-hour matter, that business is on the decline, so there is really no risk-free strategy right now — the clients are building capacity in-house for the lower-level work, and litigation is... too expensive.”
Henderson said that to adapt, law firms need to “take measured risks” in investing in new technologies and business models, as well as adopting alternative fee structures, to provide new service offerings to clients. But even then, Henderson said that even the ones that do run the risk of not being noticed by the client: “The client has to be educated to take advantage of that... and a lot of clients don’t want to ascend that learning curve.”
Reeser said that law firm managing partners are “running out of airspeed, altitude and ideas at the same time.”
“The reaction of a superior value proposition that clients have been asking for has not received much more than lip service,” he said. “As a result, clients have taken the lead in making key decisions that have a long term impact on law firm business and profits.”